How to use the Internet for stock analysis without being an Analyst?

Whether or not to invest in a company by purchasing its stock and holding it for the long term should be based on the firm’s ability to grow the value of the stock over time. The value of a security is derived from a company's long term ability to create cash profits from invested capital. A company’s financial statements are intended to give a snapshot of how successfully this creation of value is being accomplished. But unless you're an accountant, you may find that a look at a financial report is like a visit to another planet! As daunting as a company’s financial statements appear there are some key indicators that a non professional investor can look for that will give him or her a general idea of whether to consider investing in a particular company. Also, thanks to the Internet the job of analyzing companies has been made much easier. The following seven steps will aid you in your analysis of the long term growth potential of a company’s stock. All or most the data discussed in the article can be retrieved online via one of several online search engines (Google Finance, Yahoo Finance, MSN Money, MarketWatch, CNN Money, and Reuters). Simply enter the company’s name or its ticker symbol and the specific data you wish to access will be displayed. NOTE: The Internet is dynamic; websites cited in this article are subject to change without warning or notice!

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Internet accessible computer

1. Look for the 50-day moving average. To find these averages simply add the opening or closing prices of the last 50 days of the stock you are following. Then divide by 50 to obtain the stock's average price over the last 50 trading days. If the stock price is currently above its 50-day moving average this is a good indicator.
2. Using the online balance sheet check for cash flow this number should always be positive.
3. Look for the daily trading volume consider buying the stock if the average daily volume is 100,000 shares or higher, and above one million shares is best.
4. Look for how many institutions own the stock, if at least 30% of shares outstanding are own by large institutions this is a good indicator.
5. Shareholders equality should be increasing! Consider buying the stock if the shareholders equality over several years is increasing.
6. Look at the debt to equity ratio. The math formula for this ratio is total liabilities ÷ shareholders' equity. This number can be calculated online at http://www.csgnetwork.com/debt2equityratiocalc.html. Ideally, you want to invest in a company where the total debt to equity figure is below 0.5 and even better, a company with a 0.25 or lower debt/equity ratio.
7. Beta is a measure of the market risk or volatility of investing in a stock. Stocks with low beta numbers (less the 1.00) should be considered. You'll find calculated values of beta on all of the major stock reporting sites also, on the Security and Exchange Commission’s website at http://www.sec.gov/.

Tips & Warnings

• Ratios are a way to evaluate the performance of a company and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency, and debt load of a company. The following page link host online calculators that you can use for this purpose http://www.bdc.ca/en/business_tools/calculators/overview.htm?cookie%5Ftest=1
• Invest, don’t gamble! Stick with companies with solid financials. The steps described will give you an indication if a stock is worth considering.
• The steps given are made available to you as self-help tools for your independent use and are not intended to provide investment advice. As with any other form of analysis, the steps described aren't definitive and their results shouldn't be viewed as gospel truth, but as indicators.